Stimulus & Economics: Some basics & things to ponder

Yes, we are doing a finance piece today. As with every finance piece I try and do a disclaimer. This blog and this post are my opinions based on years of working in the finance industry. These are not meant to be financial advice but rather a perspective on what is happening in the finance world. Before making any financial decision consult several sources to make an informed decision.

We know that there is another round of stimulus on the way if you live in the U.S. “Trillions” a number that is thrown around a lot. Going to let you in on a little secret, there isn’t a warehouse full of trillions of dollars waiting to back up the stimulus. For lack of a better term, all of these transactions are “numbers on a screen”. As an example, you may have 10K in your checking account. The bank does not have 10K cash sitting in their vault with your name on it.

Cold Brew Ice Coffee, A great stimulus!

What does stimulus do? It provides money so people can spend it and stimulate the economy. You buy a happy meal at McDonald’s. Someone has to get it ready for you, someone has to make the ingredients, someone has to make the container for the fries… you get the point. That is stimulus at its heart. It’s not just giving you money, it’s the residual effect of what happens when you spend that money and how many people are affected by it.

The down side? The value of money decreases. Its simple supply and demand right? The government through stimulus is increasing supply. At some point there will be so much money floating around that it takes more to buy a product. If everyone has more money, why would someone who produces a product not raise the price? Not only that but the cost to obtain money, interest rates, have been very low for years (decades). So what does this mean? It means that the more money that goes into the economy (even electronically) the less valuable it is.

Why are antiques worth so much? Because there are fewer and fewer of them every year. Did you try and get a new gaming console this year? Hard to find right? And the price if you did find one, oof. Want a ticket to a football game? Not cheap right. You get the point, the less of something there is the more valuable it becomes due to demand.

What does this mean for us? First the short term effect is positive people get cash and can spend it now and then give that money to someone else. That is the best outcome of stimulus and it absolutely works. Sustained stimulus (2,3,4 checks) this is problematic because its necessary due to an artificial condition. Demand is there, but supply of goods and services are reduced due to the pandemic. So more money pours into the economy to keep people afloat.

What happens when things get back to the new normal and people are vaccinated? The money doesn’t go away it’s still out there, so you get inflation. For many of you under 30 you’ve never really experienced severe inflation. Prices go up, income stays the same. It’s very simple, the more of something that exists (material items) the less valuable it becomes, that includes money.

Always be mindful of your personal economy. 30 mins a week minimum you should invest in your budget, savings, investments, spending habits. Become an expert in your personal economy, make sure you are financially educated in how you handle money. The world will carry on, the economy will wax and wane. Things have been good for a while now, even with a pandemic and decades of government spending inflation remains at bay for now.

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How to navigate the finance industry

First a disclaimer: I have been a finance professional in many different roles for nearly 30 years. The advice I give on this blog should not be taken as fact but rather an educated opinion. When making financial decisions you should always do your own research and not trust singular voices a world away.

Now that out of the way let me tell you how to navigate the finance industry. The finance industry is the multi-billion dollar apparatus that uses fear to get you to give them money. I know it sounds sinister, because it is IMHO. “You need a million dollars to retire!!!!!!!!!” the shouts go up nearly daily. Really? Because I know many people who didn’t have a million dollars and had a good retirement.

Sure if you want to travel all over the world first class, yep you are going to need MILLIONS. If you intend on staying in the home you have purchased and been in for years, and live a normal life (dinner a few times a month a nice vacation once a year, a long weekend away twice a year as an example) then you need income to support this. Is this what you are doing now? Do you have millions in the bank?

The finance industry uses fear to get the outcome they want. They want you to give them money, so for a fee, they can invest it in products they created and give you money back in the future. Oh by the way there is no guarantee you will get MORE back, or even the same amount you put in initially. “As you age medical expenses go through the roof you need MORE INSURANCE

Am I contagious?
OMG what is this guy talking about?

Another cry goes out. Perhaps you will, perhaps you won’t. The important thing here is to step back and observe what is happening. You are being sold, and then they are upselling you. I know you are amazed to read that the nice men and women SHOUTING you need to save millions might be selling you products to make THEM money but hear me out.

When you go to an auto mechanic and he says “you need a new alternator coil” how do you know you actually do? You went to him for his expertise, you are TRUSTING that he is giving you the right information. He might be, or he might be upselling you something you don’t need because you are ignorant of what you really need.

I know I am rambling a bit, it’s because the finance industry annoys me. Maybe I am jaded (ya I am) or maybe I have a better way. So here it is, the pay off, the moment you have been waiting for….

KARAC HOW DO I NAVIGATE THE FINANCE INDUSTRY.

You seek out teachers, not salesman.

Here is what I mean. All of the sarcasm I spewed above may actually be true. You may need millions, I don’t know your life or the life you desire to lead. Rather than place your trust in someone selling you a product, how about you place your trust in someone who is willing to teach you about the product? Finance isn’t complicated. I know you don’t believe me, because you’ve been conditioned not to. If you make 30K annually and you live on 29K annually you have enough to live. If you wish to live a life that requires 39K annually you have to make 9K more to do it.

Find someone who will teach you about finance, about how to make money grow. About what insurance you need at what phase in your life. Find someone to teach you about investing, about how to buy a car, about how to save for college. This knowledge is out there and it’s easier to obtain then you think.

You can navigate the finance industry with one simple step, commit to not be sold, commit to learning.

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